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Development plan drives record sukuk

Islamic bond sales rise four-fold to $2.9b from $730m a year ago, hitting an all-time high this quarter

Gulf News

Kuala Lumpur: Malaysia's global Islamic bond sales rose to a record this quarter and outstripped issuance from the Arabian Gulf as the government started a $444 billion (Dh1.63 trillion) development programme.

The sales by 11 local companies and the government rose four-fold to $2.9 billion from $730 million a year earlier, according to data compiled by Bloomberg. State-owned GovCo Holdings Bhd. and Pengurusan Aset Air Bhd, a government-controlled water utility, were among the firms that sold Shariah-compliant debt to international investors last month. Persian Gulf issuance rose to $964 million from $450 million.

Malaysia will dominate sales of Shariah-compliant bonds for a fourth year as unrest in the Middle East causes companies there to delay planned offerings, according to HSBC Holdings Plc and CIMB Islam ic Bank Bhd. The government may sell sukuk to fund its single biggest development project, a 48 billion ringgit (Dh58.26 billion) commuter rail network in the capital, part of Prime Minister Najib Razak's ten-year initiative to spur investment and growth.

Political turmoil

"Sukuk sales in Malaysia will probably be 60 pe rcent of the global total this year," Rafe Haneef, chief executive officer of Kuala Lumpur-based HSBC Amanah Malaysia Bhd., the Islamic unit of HSBC, said in a March 16 interview. "Because of the political turmoil, issuers in the Middle East aren't in a hurry to come to the market."

GovCo Holdings sold 1.5 billion ringgit of sukuk at a yield of 4.07 per cent in February.

The rate on the notes maturing in February 2018 fell two basis points, or 0.02 percentage point, since issuance to 4.05 per cent as of yesterday, according to prices from Bursa Malaysia Bhd, which manages the nation's bond and stock exchanges.

The yield on Pengurusan Aset's 3.92 per cent debt due in February 2016 dropped five basis points since it was sold last month to 3.87 per cent as of March 28.

Malaysia's finance ministry plans to set up a special purpose vehicle to issue Islamic bonds or other capital-market instruments to finance the rail system, which should be completed in five to six years, Syed Hamid Albar, chairman of the Land Public Transport Commission, told reporters December 23.

Mohammad Dawood, director of debt capital markets at the Islamic subsidiary of HSBC Holdings in Dubai, said in an e-mail that now isn't the best time to issue bonds in the Gulf because the environment is too "volatile."